Don't be Fooled by Pension Loan Schemes

New Form of Predatory Lending Preys On Retirees

JOURNAL: ISSUE 2 - 2013

Unscrupulous financial service providers are turning to pension loans in a new form of predatory lending targeting cashed-strapped retirees and vested pension plan participants. Promoting the arrangement as "cash advances" on pension payments, these firms typically conceal the fact that the agreements are nothing more than high-interest loans. Research conducted by the New York Times found that interest rates applied to pension loans can run as high as 106 percent. 

Prior to the financial downturn of 2007, the loans were primarily mostly to wealthier seniors as a source of up-front cash for luxury items, travel, or home improvement projects. Since the downturn, some providers have shifted their focus to prey on less well off retirees and older workers that are struggling to make ends meet. With statistics showing a rising debt level among older Americans, these firms readily find loan candidates through web-based solicitations and advertisements in newspapers, radio, and television. Military veterans and civil service workers and retirees are specifically targeted as they are often vested in defined benefit pension plans.

Because these loan providers are not banks and are relatively new, so far many have managed to operate under the radar of state and federal regulators. They also circumvent regulations by characterizing their products as advances rather than loans, which allows them to avoid interest limitations, such as those on pay-day loans, imposed by state regulators. 

"IPF's rules and regulations prohibit loans or advances."

In May, the New York State Department of Financial Services launched an investigation into the pension loan industry by subpoenaing 10 companies to determine if they were in violation of the state's usury laws. Quoted at a recent news conference, Department head Benjamin Lawsky told reporters, "pension advances are nothing more than payday loans in sheep's clothing." The Department is also reviewing whether or not the firms were in violation of federal laws that restrict how military pensions are used. 

It is important to note that IPF's rules and regulations prohibit loans or advances (Bricklayers and Trowel Trades International Pension Fund Rules and Regulations, Article 8, Section 13). The Trustees included this language in the Plan Rules to protect participants, retirees, and their beneficiaries from predatory lending schemes and other forms of benefit assignment. Specific exceptions, including qualified domestic relations orders and exceptions codified under ERISA, may apply. Should you have any questions regarding benefit assignment please contact the Fund office. 

Terms of a Typical Pension Loan